Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13
or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1994 Commission File
Number 1-5558
Katy Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1277589
(State of Incorporation) (I.R.S. Employer
Identification No.)
853 Dundee Avenue, Elgin, Illinois 60120
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including area code: (312)379-1121
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at June 30, 1994
Common stock, $1 par value 9,017,387<PAGE>
KATY INDUSTRIES, INC.
FORM 10-Q
JUNE 30, 1994
INDEX
Page No.
PART I FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 2
Statements of Condensed Consolidated Operations
Three months and six months ended
June 30, 1994 and 1993 4
Statements of Condensed Consolidated Cash Flows
Six months ended June 30, 1994 and 1993 6
Notes to Condensed Consolidated Financial Information 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
<TABLE>
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
<CAPTION>
June 30, December 31,
1994 1993
(Thousands of Dollars)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $127,394 $130,289
Marketable securities - available for sale
(1993 at cost; market - $31,223) - Note 1 28,231 15,795
Accounts receivable, trade, net of allowance
for doubtful accounts of $4,048 and $7,97523,537 20,568
Notes and other receivables, net of allowance
for doubtful notes of $360 and $10 2,632 3,804
Inventories - Note 1 33,602 40,725
Other current assets 10,031 14,165
Total current assets 225,427 225,346
OTHER ASSETS:
Investments, at equity, and advances to
unconsolidated subsidiaries - Note 2 41,574 45,516
Investments, at cost - Note 3 428 6,704
Notes receivable, net of allowance for
doubtful notes of $1,400 and $1,700 2,884 3,058
Miscellaneous 16,316 19,915
Total other assets 61,202 75,193
PROPERTIES, at cost:
Land and improvements 5,198 3,433
Buildings and improvements 27,792 22,820
Machinery and equipment 58,502 52,488
91,492 78,741
Accumulated depreciation ( 51,157) ( 49,055)
Net properties 40,335 29,686
$326,964 $330,225
<FN>
See Notes to Condensed Consolidated Financial Information.
/TABLE
<PAGE>
<TABLE>
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
<CAPTION>
June 30, December 31,
1994 1993
(Thousands of Dollars)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 9,992 $ 10,163
Accounts payable 9,347 8,777
Accrued compensation 5,975 5,058
Accrued interest and taxes 1,285 1,131
Accrued liabilities 22,256 21,508
Current maturities, long-term debt 3,283 2,991
Dividends payable - Note 4 126,323 643
Total current liabilities 178,461 50,271
LONG-TERM DEBT, less current maturities 5,710 4,289
OTHER LIABILITIES 29,458 31,899
MINORITY INTEREST 210 -
Total liabilities 213,839 86,459
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, authorized
25,000,000 shares, issued and outstanding
9,821,329 shares 9,821 9,821
Additional paid-in capital 51,111 51,111
Foreign currency translation adjustment 3,488 3,880
Unrealized holding gains - Note 1 7,593 -
Retained earnings 54,972 192,814
Treasury stock 803,942 shares ( 13,860) ( 13,860)
Total stockholders' equity 113,125 243,766
$326,964 $330,225
<FN>
See Notes to Condensed Consolidated Financial Information.
/TABLE
<PAGE>
<TABLE>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1994 1993 1994 1993
(Thousands of Dollars Except Per Share Data)
<S> <C> <C> <C> <C>
Net sales $ 42,641 $ 44,592 $ 81,064 $ 84,932
Costs and expenses:
Cost of goods sold 36,116 31,946 63,152 61,023
Selling, general and administrative 11,580 11,220 21,443 22,715
Depreciation and amortization 1,514 1,482 3,058 2,978
Interest expense 502 404 1,022 817
Interest income ( 1,294)( 1,113)( 2,519)( 2,651)
Other expense (income), net - Note 5 1,787( 1,138) 1,557( 1,479)
Gain on sale of stock - Note 3 - - - ( 6,081)
Write off of investments - Notes 3 and 5 2,708 - 9,288 -
52,913 42,801 97,001 77,322
Income (loss) from continuing consolidated
operations before provision for income
taxes and minority interest ( 10,272) 1,791 ( 15,937) 7,610
Benefit (Provision) for income taxes 1,739( 1,438) 3,603( 4,190)
Minority stockholders share of (income) loss( 5) 514( 5) 1,024
Income (loss) from continuing
consolidated operations ( 8,538) 867 ( 12,339) 4,444
Equity in income of unconsolidated
subsidiaries - Note 2 691 665 1,304 1,324
Gain as a result of initial public
offering by an unconsolidated
subsidiary - Note 2 - - - 835
Income (loss) from continuing operations( 7,847)1,532( 11,035)6,603
Discontinued consolidated operations - - - ( 1,343)
Income (loss) before cumulative effect of
change in accounting principle( 7,847) 1,532 ( 11,035) 5,260
Cumulative effect of change in
in accounting principle - - - ( 1,418)
Net income (loss) ($ 7,847)$ 1,532($ 11,035)$ 3,842
<FN>
See Notes to Condensed Consolidated Financial Information.
</TABLE>
<TABLE>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1994 1993 1994 1993
(Thousands of Dollars Except Per Share Data)
<S> <C> <C> <C>
Earnings per share:
Income from continuing operations ($ .87) $ .17 ($ 1.22) $ .73
Discontinued consolidated operations - - - ( .15)
Cumulative effect of change
in accounting principle - - - ( .15)
Net income ($ .87) $ .17 ($ 1.22) $ .43
Average shares outstanding (in thousands) 9,017 9,017 9,017 9,017
Dividends per share - common stock $ 14.00 $ .0625 $14.0625 $ .1250
<FN>
See Notes to Condensed Consolidated Financial Information.
/TABLE
<PAGE>
<TABLE>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
<CAPTION>
Six Months Ended
June 30
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 11,035) $ 3,842
Gain as a result of an initial public
offering by an unconsolidated subsidiary - ( 835)
Write off of investments 9,288 -
Loss (Gain) on sale of assets 76 ( 7,035)
Discontinued operations - 1,343
Provisions for inventory valuation reserves 5,072 -
Cumulative effect of change in accounting principle- 1,418
Adjustments to reconcile net income to net cash
flows from operating activities ( 124) ( 5,761)
Net cash flows from operating activities 3,277 ( 7,028)
Cash flows from investing activities:
Proceeds from sale of assets 217 42,763
Time deposits and marketable securities activity- 19,044
Collections of notes receivable 227 63
Purchase of subsidiary, net of
cash acquired ( 2,226) ( 158)
Capital expenditures ( 1,614) ( 2,352)
Net cash flows from investing activities( 3,396) 59,360
Cash flows from financing activities:
Notes payable activity, net ( 171) 2,606
Principal payments on long-term debt ( 1,479) ( 852)
Payment of dividends ( 1,126) ( 1,128)
Net cash flows from financing activities( 2,776) 626
Net increase (decrease) in cash and cash
equivalents ( 2,895) 52,958
Cash and cash equivalents beginning of period 130,289 34,801
Cash and cash equivalents end of period $127,394 $ 87,759
<FN>
See Notes to Condensed Consolidated Financial Information.
/TABLE
<PAGE>
(1)Significant Accounting Policies
Consolidation Policy
The financial statements include, on a consolidated basis,
the accounts of Katy Industries, Inc. and subsidiaries (Katy) in
which it has greater than 50% interest.
The information furnished reflects all known adjustments
which are, in the opinion of management, necessary for a fair
presentation. Interim figures are subject to year-end audit
adjustments.
Inventories
The components of inventories are as follows:
June 30, December 31,
1994 1993
(Thousands of Dollars)
Raw materials $ 12,203 $ 13,710
Work in process 8,797 9,582
Finished goods 12,602 17,433
$ 33,602 $ 40,725
New Accounting Pronouncements
On January 1, 1994 Katy adopted Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 115
requires, among other things, that securities which are available
for sale be classified as such and stated at their fair value
with the unrealized holding gain or loss accounted for as a
separate component of stockholders' equity.
Adoption of SFAS No. 115 resulted in the reclassification
of marketable securities with a cost of $15,795,000 to securities
available-for-sale. Such securities were also revalued to their
fair value on January 1, 1994 of $31,223,000 and the unrealized
holding gain of $9,257,000, net of related taxes, was accounted
for as a separate component of stockholders' equity. As of
June 30, 1994 the unrealized holding gain was $7,593,000, net of
related taxes. During the six months ended June 30, 1994 there
were no purchases or sales of marketable securities.
<PAGE>
<TABLE>
(2)Investments, at Equity, and Advances to Unconsolidated Subsidiaries
Katy's investments in and advances to unconsolidated subsidiaries are comprised
of the following:
<CAPTION>
June 30, 1994 Investments Advances Total
(Thousands of Dollars)
>S> <C> <C> <C>
Syratech Corporation $35,033 $ - $35,033
Bee Gee Holding Company, Inc. 6,541 - 6,541
$41,574 $ - $41,574
December 31, 1993 Investments Advances Total
Syratech Corporation $32,977 $ - $32,977
Bee Gee Holding Company, Inc. 6,281 - 6,281
C.E.G.F. (USA) 2,060 4,198 6,258
$41,318 $ 4,198 $45,516
</TABLE>
In March, 1994 Katy purchased 50% of the outstanding common
stock of C.E.G.F. (USA) for $2,750,000 which purchase results in
Katy owning 95% of C.E.G.F. The excess of the purchase price
over the net book value of assets purchased has been allocated to
properties and is being depreciated over the remaining lives of
the assets. As of March 31, 1994 the balance sheet of C.E.G.F.
was included in Katy's Condensed Consolidated Balance Sheet and
beginning in the second quarter of 1994 the income statement of
C.E.G.F. has been included in Katy's Statement of Condensed
Consolidated Operations. This acquisition does not materially
impact Katy's results of operations or financial position.
In December, 1992 Syratech Corporation completed an Initial
Public Offering at $16.50 a share. This transaction diluted
Katy's ownership percentage to 28.8% from 36.1%. Katy's share of
Syratech's increased shareholder equity accounts resulted in a
credit of $1,369,000 before income taxes of $534,000 ($.09 per
share) to Katy's Statement of Condensed Consolidated Operations
in the first quarter of 1993. At the time of the Initial Public
Offering Syratech adopted a shareholder rights plan. Katy's
shares are not registered and if sold to a single purchaser
would cause the shareholder rights plan to become effective.
Katy accounts for this investment on a three month lag basis.
Katy's ownership percentage is currently 26.4% (25.7% on a fully
diluted basis).
<PAGE>
<TABLE>
(2) Investments, at Equity, and Advances to Unconsolidated Subsidiaries (Continued)
The condensed financial information which follows reflects Katy's proportionate
share in the financial position and results of operations of all of its
unconsolidated subsidiaries:
<CAPTION>
June 30, December 31,
1994 1993
(Thousands of Dollars)
<S> <C> <C>
Current assets $ 37,144 $ 35,356
Current liabilities ( 13,732) ( 13,864)
Working capital 23,412 21,492
Properties, net 25,234 29,283
Other assets 786 913
Long-term debt ( 5,238) ( 8,979)
Other liabilities ( 5,917) ( 5,234)
Stockholders' equity 38,277 37,475
Unamortized excess of cost
over net assets acquired 3,297 3,843
Investments, at equity, in
unconsolidated subsidiaries $ 41,574 $ 41,318
</TABLE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1994 1993 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Sales $ 20,890 $ 23,120 $ 41,784 $ 45,954
Costs and expenses ( 19,433) ( 21,751) ( 39,008) ( 43,254)
Net income 1,457 1,369 2,776 2,700
Amortization of excess
of cost over net
assets acquired ( 198) ( 215) ( 402) ( 382)
Provision for income taxes ( 568) ( 489) ( 1,070) ( 994)
Equity in net income
of unconsolidated
subsidiaries $ 691 $ 665 $ 1,304 $ 1,324
/TABLE
<PAGE>
(3)Investments, at Cost
In April, 1994 management of Katy met with Katy's oil
exploration joint venture partners and, based on current facts
and circumstances, Katy has decided not to commit further funds
to the oil exploration project and will not participate in any
further activities on the site. Accordingly, in March, 1994
Katy wrote off its $6,580,000 investment.
In January, 1993 Katy sold its 8% interest, (78,145 shares
of common stock) in Compagnie des Entrepots et Gares
Frigorifiques (CEGF), a French cold storage company, for cash
proceeds of $10,953,000 resulting in a pre-tax gain of
$6,081,000.
(4)Special Dividend
On June 29, 1994, Katy's Board of Directors declared a
special cash dividend of $14.00 per share on Katy's common stock,
payable August 19, 1994 to stockholders of record at the close of
business on July 22, 1994.
(5)Nonrecurring Items
During the second quarter of 1994 Katy provided $5,072,000
of inventory reserves at certain subsidiaries, which were
primarily related to the Industrial Machinery segment. In
addition, Katy management has decided to cease production and
re-build of presses at its manufacturer of presses resulting in
a $600,000 charge. These provisions have been charged to cost
of goods sold in the accompanying Statements of Condensed
Consolidated Operations. Management has also concluded that the
value ($2,708,000) of the Seghers waste-to-energy technology that
was acquired in 1987 has been significantly impaired and wrote it
off in the second quarter of 1994. In June, 1994, Katy incurred
a charge of $650,000 for moving its corporate office to Denver,
Colorado and for severance compensation for those employees not
relocating.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On June 29, 1994, Katy's Board of Directors declared a
special cash dividend of $14.00 per share on Katy's Common
Stock, payable August 19, 1994 to stockholders of record at the
close of business on July 22, 1994. The New York Stock Exchange
established August 22, 1994 as the ex-dividend date.
Action on the special dividend, which had initially been
recommended to the Board by a special committee on March 8, 1994,
had been deferred until the Delaware Court of Chancery ruled on
Pensler Capital Partners and Herbert Mendel's application for a
preliminary injunction. The Delaware Court of Chancery on
Friday, June 17, 1994 denied the application for a preliminary
injunction. The dividend amounting to $126,243,000, which will
be taxable as ordinary income to the stockholders, will be funded
through Katy's cash and cash equivalent balances.
During the six months ended June 30, 1994 working capital
decreased $128,109,000 compared to December 31, 1993. Current
ratios were 1.26 to 1.00 at June 30, 1994 and 4.48 to 1.00 at
December 31, 1993, respectively. The decrease in working capital
and in the current ratio principally results from the accrual of
the special dividend which was declared on June 29, 1994. Katy
has authorized and expects to commit an additional $4,200,000
for capital projects during the remainder of 1994. Funding for
these expenditures and for working capital needs is expected to
be accomplished substantially through use of internally generated
funds from operations supplemented by short-term borrowing and a
$7,400,000 million loan secured by C.E.G.F.'s properties.
On January 1, 1994 Katy adopted Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 115
requires, among other things, that securities which are available
for sale be classified as such and stated at their fair value
with the unrealized holding gain or loss accounted for as a
separate component of stockholders' equity. Upon adoption Katy
reclassified marketable securities with a cost of $15,795,000 to
securities available for sale. Such securities were revalued to
their fair value, on January 1, 1994, of $31,223,000 and the
unrealized holding gain of $9,257,000, net of related taxes, was
accounted for as a separate component of stockholders' equity.
As of June 30, 1994 the securities were valued at $28,231,000
and the unrealized holding gain was $7,593,000, net of related
taxes.
The Company and certain of its current and former direct and
indirect corporate predecessors, subsidiaries and divisions have
been identified by the U.S. Environmental Protection Agency and
certain state environmental agencies and private parties as
potentially responsible parties ("PRP's") at a number of
hazardous waste disposal sites under the Comprehensive
Environmental Response, Compensation and Liability Act
("Superfund") and equivalent state laws and, as such, may be
liable for the cost of cleanup and other remedial activities at
these sites. Responsibility for cleanup and other remedial
activities at a Superfund site is typically shared among PRPs
based on an allocation formula. The means of determining
allocation among PRPs is generally set forth in a written
agreement entered into by the PRPs at a particular site. An
allocation share assigned to a PRP is often based on the PRP's
volumetric contribution of waste to a site. The Company is also
involved in remedial response and voluntary environmental
clean-up at a number of other sites which are not currently the
subject of any legal proceedings under Superfund, including
certain of its current and formerly owned manufacturing
facilities. Based on its estimate of allocation of liability
among PRPs, the probability that other PRPs, many of whom are
large, solvent, public companies, will fully pay the costs
apportioned to them, currently available information concerning
the scope of contamination, estimated remediation costs,
estimated legal fees and other factors, the Company has remaining
reserves at June 30, 1994 for indicated environmental liabilities
in the aggregate amount of approximately $6,500,000. Although
management believes that these matters in the aggregate are not
likely to have a material adverse effect on Katy's consolidated
financial position or results of operations, further costs could
be significant and will be recorded as a charge to operations
when such costs become probable and reasonably estimable.
Katy also has a number of product liability and workers'
compensation claims pending against it and its subsidiaries.
With respect to the product liability and workers' compensation
claims, Katy has provided for its share of expected losses
beyond the applicable insurance coverage, including those
incurred but not reported. Such accruals are developed using
currently available claim information. The incurred but not
reported component of the liability was developed using actuarial
techniques.
At June 30, 1994, Katy had short and long-term indebtedness
for money borrowed of $18,985,000 of which $9,992,000 represented
short-term bank credit lines from banks in Germany in support of
Katy's 75% owned German subsidiary. Total debt was 14.37% of
total debt and equity at June 30, 1994. In August, 1994, Katy
changed it's banking relationship and has a commitment for a
secured short-term line of credit from The Northern Trust Company
in the amount of $20,000,000. In addition, Katy has signed a
letter of commitment with a bank for a $7,400,000 secured loan to
C.E.G.F., $3,700,000 of which will be used for expansion of the
Plant City, Florida cold storage warehouse.
During the first six months of 1994, Katy's 75% owned German
subsidiary, Schon & Cie, A.G. ("Schon") incurred losses of
$5,800,000 from operations, including a $3,800,000 provision for
excess inventory quantities which has been made in consolidation
for United States reporting purposes. These losses were mitigated
somewhat by a partial recovery of trade receivables written-off
in prior years. Schon management anticipates that it will incur
only minimal operating losses for the balance of 1994. Katy
anticipates paying in the third quarter of 1994 approximately
$5,000,000 of Schon's bank debt, representing 100% of the
remaining amounts guaranteed by Katy and will also lend Schon
$300,000 for working capital. In addition, Schon has received
conditional approval from its banks for approximately
$3,500,000 of new debt to provide for working capital needs.
The sales order backlog remains inadequate and management is
continuing to evaluate its options with regard to Schon. Katy
does not anticipate providing substantial additional funding for
Schon.
In April, 1994 management of Katy met with Katy's oil
exploration joint venture partners and, based on current facts
and circumstances, Katy has decided not to commit further funds
to the oil exploration project, and will not participate in any
further activities on the site. Accordingly, the Company wrote
off its investment in the oil exploration joint venture in
March, 1994.
Katy-Seghers, Inc., a wholly-owned subsidiary of the
Company, has been the vehicle used to commercialize and bid on
new projects in the waste-to-energy industry utilizing the
Seghers technology. It has not formally bid on a new project
since 1991. The Company currently owns and operates a
waste-to-energy facility utilizing this technology in Savannah,
Georgia. During the second quarter of 1994, the Supreme Court of
the United States of America ruled that the ash generated by such
waste-to-energy facilities is hazardous waste. This ruling has
resulted in higher operating costs for waste-to-energy facilities.
Based on the developments within the waste-to-energy
industry in recent years and the ruling discussed above,
management has concluded that further commercialization of the
Seghers technology is unlikely, that the value of the technology
has been significantly impaired and, accordingly, has written
down its investment in this technology to zero.
Management is in the process of reviewing each of its
businesses to determine the Company's focus for the future. Upon
the conclusion of such review, management may determine to sell
certain companies and may augment its remaining businesses with
acquisitions. Such review has yet to be completed and there have
been no decisions regarding the disposition of any significant companies.
When such sales occur, management anticipates that funds from
these sales will be used for general corporate purposes. Any
acquisitions would be funded through cash balances, available
lines of credit, and future borrowings.
As a preliminary result of the above mentioned review
process, Katy management decided that for consolidated financial
reporting purposes, a consistent methodology for estimating
inventory valuation reserves should be applied for all
subsidiaries, regardless of their unique business or foreign
financial reporting requirements. As a result consolidated
inventory valuation reserves increased for excess and potentially
unsaleable inventories due to low sales in recent years and
current low sales order backlogs for certain industrial
companies, primarily foreign operations. The aggregate charge to
cost of goods sold in the Statements of Condensed Consolidated
Operations for the second quarter was $5,072,000 for these items
(including the previously referred to amount for Schon).
<PAGE>
<TABLE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1994
Following are summaries of sales and operating income for the six months ended
June 30, 1994 and 1993 by industry segment:
<CAPTION>
Sales
Increase (Decrease)
1994 1993 Amount Per Cent
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Industrial Machinery $ 31,368 $ 28,457 $ 2,911 10.23%
Industrial Components 16,871 27,547 ( 10,676) (38.75 )
Consumer Products 32,825 28,928 3,897 13.47
Total sales $ 81,064 $ 84,932 ($ 3,868) ( 4.55%)
Operating Income
Percent of Sales
1994 1993 1994 1993
(Thousands of Dollars)
Industrial Machinery ($ 5,550) ($ 2,131) ( 17.69%) ( 7.49%)
Industrial Components 270 1,765 1.60 6.41
Consumer Products 3,913 2,812 11.92 9.72
Total operating income ($ 1,367) $ 2,446 ( 1.69%) 2.88%
</TABLE>
The increased sales of the Industrial Machinery segment is
primarily attributable to the food packaging and food processing
machinery manufacturers. The 1994 operating loss reported for
the segment was considerably higher than the loss reported in
1993, the result of provisions to inventory valuation reserves at
certain locations, primarily foreign operations, and declining
margins.
The Industrial Components segment reported decreased sales
primarily due to the sale of the pump manufacturing companies in
the fourth quarter of 1993. Operating income declined primarily
as the result of provisions to inventory valuation reserves of a
foreign subsidiary.
<PAGE>
Six Months Ended June 30, 1994 (Continued)
The Consumer Products segment reported increased sales and
operating income, the result of higher sales and improved
margins. All units in the group, except for the filter
business, reported increased sales. The filter business reported
decreased sales, but improved operating margins, due to the
closing of the IAQ 2000 product line in the fourth quarter of
1993. All other units, except the sanitary maintenance supply
business, reported increased operating income.
Selling, general and administrative expenses decreased by
$1,272,000, primarily the result of decreased sales expenses due
to lower sales in 1994 and the sale of the pump manufacturing
companies in the fourth quarter of 1993.
Income before income taxes decreased by $23,547,000
primarily the result of the the write-off of investments of
$9,288,000 (oil exploration joint venture investment and Seghers
technology) and provision for inventory valuation reserves of
$5,072,000 in 1994 and the inclusion in 1993 of a gain of
$6,081,000 from the sale of investments. Additionally, Katy
ceased production and re-build activities at the manufacturer of
presses incurring charges to operations of $600,000, and also
incurred charges of $650,000 for the cost of moving its corporate
office to Denver, Colorado including severance compensation for
those employees not relocating.
Equity in income of unconsolidated subsidiaries decreased
by $20,000. Bee Gee Holding Company, Inc. reported increased
earnings due to higher sales and margins, and for the three
months ended March 31, 1994, C.E.G.F. (USA) reported increased
earnings due to higher margins. Syratech Corporation reported
increased earnings, resulting from increased sales and higher
profit margins. As a result of the dilution of Katy's ownership
percentage of Syratech, Katy's share of Syratech's income in 1994
decreased slightly. For additional information on unconsolidated
subsidiaries and gain as a result of initial public offering of
an unconsolidated subsidiary in 1993, see Note 2 of Notes to
Condensed Consolidated Financial Information.
<TABLE>
Three Months Ended June 30, 1994
Following are summaries of sales and operating income for the three months ended
June 30, 1994 and 1993 by industry segment:
<CAPTION>
Sales
Increase (Decrease)
1994 1993 Amount Per Cent
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Industrial Machinery $ 15,787 $ 15,624 $ 163 1.04%
Industrial Components 9,238 13,984 ( 4,746) (33.94 )
Consumer Products 17,616 14,984 2,632 17.57
Total sales $ 42,641 $ 44,592 ($ 1,951) ( 4.38%)<PAGE>
Three Months Ended June 30, 1994 (Continued)
Operating Income
Percent of Sales
1994 1993 1994 1993
(Thousands of Dollars)
Industrial Machinery ($ 5,352) ($ 1,068) ( 33.90% ) ( 6.83%)
Industrial Components ( 235) 1,054 ( 2.55 ) 7.53
Consumer Products 2,161 1,721 12.27 11.49
Total operating income ($ 3,426) $ 1,707 ( 8.03%) 3.83%
</TABLE>
In the Industrial Machinery segment, the decrease in sales
of Schon were more than offset by increased sales in all other
units of the segment. The 1994 operating loss reported for the
segment was considerably higher than the loss reported in 1993,
the result of provisions for inventory valuation reserves at
certain locations, primarily foreign operations, and declining
margins.
The Industrial Components segment reported decreased sales
and operating income substantially due to the sale of the pump
manufacturing operation in the fourth quarter of 1993. The
manufacturers of electrical equipment reported increased sales
with lower operating income, the result of lower profit margins
and provisions to inventory valuation reserves in 1994. The
manufacturer of precision metal products reported increased sales
and operating income, the result of increased sales and margins.
The Consumer Products segment reported increased sales
primarily due to increased sales of the sanitary maintenance
supplies business and to the acquisition of a cold storage
facility in March, 1994. Operating income increased in all units
except the sanitary maintenance business, the result of increased
sales and higher margins.
Income before income taxes decreased by $12,063,000,
primarily the result of the write-off of investments of
$2,708,000 (Seghers technology) and provision for inventory
valuation reserves of $5,072,000. In addition, Katy ceased
production and re-build activities at the manufacturer of presses
incurring charges to operations of $600,000, and also incurred
charges of $650,000 for the cost of moving its corporate office
to Denver, Colorado including severance compensation for those
employees not relocating.
<PAGE>
KATY INDUSTRIES, INC.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Except as disclosed below, during the quarter for
which this report is filed, there have been no
material developments in previously reported legal
proceedings, and no other cases or legal proceedings,
other than ordinary routine litigation incidental to
Katy's business and other non-material proceedings,
have been brought against Katy.
a. Pensler Capital Partners, I.L.P., et. al. v. Katy
Industries, Inc., et. al., Civil Action No. 13386
(Chancery Court, New Castle County, Delaware); filed February 18,
1994. On June 17, 1994, the plaintiffs' application for a
mandatory preliminary injunction, described in Katy's Form 10-K
for the year ended December 31, 1993 (the "10-K"), was denied.
b. Mendel, et. al. v. Carroll, et. al., Civil Action
No. 13306 (Chancery Court, New Castle County, Delaware); filed
December 22, 1993. On June 17, 1994, the plaintiffs' application
for a mandatory preliminary injunction, described in the 10-K,
was denied.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
KATY INDUSTRIES, INC.
Registrant
DATE: August 15, 1994 By /s/John R. Prann, Jr.
John R. Prann, Jr.
President,
Chief Executive Officer &
Chief Operating Officer
DATE: August 15, 1994 By /s/P. Kurowski
P. Kurowski
Secretary, Treasurer &
Chief Financial Officer
<PAGE>
